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ValueClick Inc.’s (VCLK) first quarter 2010 earnings beat the Zacks Consensus Estimate, demonstrating the company’s focus on driving bottom-line growth. However, revenue was down year over year and was below Consensus expectations. The company also provided a weak second-quarter guidance due to continued weakness in its Owned & Operated Websites segment.

Operating Performance

First quarter earnings per share from continuing operations (excluding amortization of intangibles but including stock based compensation expense) of 16 cents beat the Zacks Consensus Estimate of 12 cents by 4 cents. Profit rose 23.1% from the year-ago level of 13 cents a share.

Earnings on a non-GAAP basis (excluding both amortization of intangibles and stock based compensation expense) came in at 19 cents per share, above the management’s guidance of 15 – 16 cents per share. This was also 3 cents above last year’s EPS of 16 cents. Better-than-expected earnings in the quarter were due to margin expansion and slight reduction in operating expenses, partially offset by a decline in revenue.

Gross margin improved to 73.4% in the quarter from 70.0% in the year-ago quarter due to lower cost of sales and fall in revenue.

Excluding amortization of intangible expenses, operating expenses in the quarter fell 7.7% to $46.2 million (48.3% of total revenue) from $50.1 million (48.6% of total revenue) in the year-ago period. Lower sales and marketing (16.1% year over year) and general and administrative (4.2% year over year) contributed to a reduction in expense. As a result, operating margin improved to 36.4% in the quarter from 21.3% last year.

Adjusted EBITDA expanded to $27.5 million or 28.7% of sales in the quarter compared to $26.4 million or 25.6% in the year-ago quarter. This was above the company’s expectation of an adjusted EBITDA of $24 - $26.0 million or 26.0% of sales at the midpoint.

On February 1, 2010, ValueClick announced the divestiture of the Web Clients promotional lead generation business (previously included in the Media segment). The company has presented this divested business as discontinued operation for 2009. Thus, the discontinued segment has been excluded from the company’s results.

Revenue

Revenue of $95.7 million was down 7.2% year over year. This was in line with management’s revenue guidance of $93-$97 million. However, it was below Consensus expectations of $96.2 million.

The decrease was mainly attributable to the fall in Media and Owned and operated websites (previously known as comparison Shopping and Search) revenue, which did not perform well in the quarter, partially offset by a growth in Affiliate Marketing and Technology segments revenue that performed very well in the quarter.

Owned and operated websites (29.2% of total revenue) decreased 25.6% from the year-ago quarter to $27.9 million. However, this was in line with management’s expectation of a decline in the mid twenties percentage range.

Media comprised 31.8% of revenue, down 2.4% from the year-ago quarter to $30.8 million. This was much below the company’s expectation of a growth in the low-single digit percentage range.

Affiliate Marketing generated 30.7% of revenue, increasing 5.0% from the year-ago quarter to $29.4 million and was in line with the company’s expectation of a growth in the low-single digit percentage range.

Technology, which generated 8.3% of revenue, increased 23.0% year over year to $7.9 million and was also in line with the company’s expectation of a growth in the high-single digit range.

Balance Sheet

With no long-term debt, ValueClick exited the quarter with $182 million in cash and marketable securities (including the current portion of marketable securities) versus $180 million in the previous quarter. In the quarter, ValueClick generated approximately $28 million in free cash flow versus $33 million in the previous quarter.

ValueClick also repurchased 2.7 million shares for $25.3 million in the quarter and has approximately $44.6 million remaining under its stock repurchase authorization.

Guidance Disappoints

For the second quarter of 2010, ValueClick expects revenue in the $95 - $98 million range. This was below Consensus expectations of $98.3 million.

Year over year, the company expects revenue from Media and Technology to be up in the low-single digit percentage range. Affiliate marketing Technology is expected to be up in the high-single digit range. However, the Owned & Operated Websites (Comparison shopping and search) is expected to decline in the mid twenties percentage range.

Adjusted EBITDA is expected to be in the range of $24.0 - $26.0 million, which represents an adjusted EBITDA margin of 26% at the midpoint. Earnings on a GAAP basis are expected to be in the range of 11 cents to 12 cents per share, while earnings on a non-GAAP basis are expected to be in the range of 16 cents to 17 cents per share.

Source: ValueClick Profit Up, Revenue Tumbles